Neither primary volume nor moderately volatile Treasuries did much to upset the municipal market’s steady mien this week.
Triple-A muni yields had mostly bobbed up and down in a gentle current of investor demand, modest supply and subdued headlines. But rising Treasury yields Thursday morning pushed munis higher. Still, muni yields have narrowly outperformed those of Treasuries this week in the intermediate and long sections of the yield curve.
And while the secondary market mostly hid in the shadows, the primary market’s larger deals did well. Some arrived a day early or were priced aggressively, as was the case for California’s competitive general obligation issue.
Despite the modest backup in most rates among munis and Treasuries on the week, muni bond indexes mostly held their levels. The 20-bond index of 20-year GO yields was unchanged this week at 3.68%, remaining at its highest level since Sept. 20, when it was 3.72%.
The 11-bond index of higher-grade 20-year GO yields also was unchanged this week at 3.47%. It holds at its highest level since Sept. 20, when it was 3.51%.
The yield on the U.S. Treasury’s 10-year note declined one basis point this week to 1.83%, but remained above its 1.68% level from two weeks ago. The yield on the Treasury’s 30-year bond dropped four basis points this week to 2.98%, but remained above its 2.86% level from two weeks ago.
Fundamentals in the muni market really haven’t changed much over the past few months, said Howard Mackey, president of the broker-dealer division of Rice Financial Products. It’s mostly volatility in the Treasury and equities markets on persistent headline risk overseas that has created waves in the tax-exempt market, he added.
“Volatile Treasuries are the primary thing driving the market,” he said. “Looking at the news in Europe and, to the extent that there’s so much uncertainty, and it’s just from one thing to the next, people are in a position where they’re hard-pressed to find a reason why the bond markets should continue to improve. So, at this point, they take profits in the Treasury market.
“Our follow-through is naturally to cut back. So, our liquidity dries up, to some extent. And that causes our drop in the market.”
Since Friday, triple-A muni yields haven’t done much more than stagger around, Municipal Market Data showed. The benchmark 10-year yield rose one basis point over the period to 1.75%.
The 30-year yield slipped one basis point to 2.85% over the period. The two-year has held steady at 0.30% for 22 consecutive sessions.
Muni ratios to Treasuries plunged on the week due to the relative outperformance of the former. Ratios at the key points of the yield curve have all dropped into richer territory, solidly below 100%.
The 10-year ended Thursday’s session at slightly more than 94%. The two-year closed a shade under 91%. And the 30-year dropped to 95.6%.
The Bond Buyer’s revenue bond index, which measures 30-year revenue bond yields, was unchanged as well this week at 4.33%. It remains at its highest level since Sept. 20, when it was 4.37%.
The Bond Buyer’s one-year note index, which is based on one-year GO note yields, was unchanged this week at 0.21%. It stays at its lowest level since Aug. 1, when it was also 0.21%.
The weekly average yield to maturity of The Bond Buyer municipal bond index, which is based on 40 long-term bond prices, declined one basis point this week, to an all-time low of 4.14%. It is the fourth time in five weeks that the weekly average has reached a record low. The Bond Buyer began calculating the average yield to maturity on Jan. 1, 1985.